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on SAP cloud computing and on-demand software.

While on-demand software provides increased scalability and flexibility, financial gains can be modest and incremental, according to the report.

The biggest financial gains to be had can be had with SAP’s network of third-party platform providers that customers can use for testing and development purposes, according to Liz Herbert, one of the primary authors of the study.

“That’s where a lot of the cost savings come in," Herbert said. "The infrastructure is just there and actually being used. When you had to use that peak, you didn’t have to pay for that peak workload.”

Organizations can also benefit from the Software as a Service (Saas) products that complement the core SAP applications they’re running, according to Forrester.

Yet several issues that could potentially slow how quickly companies implement SAP on-demand solutions in the future.

To begin with, some companies remain apprehensive about the technology, as evidenced by the limited success of SAP Business ByDesign and itsCRM OnDemand application, which has so far failed to gain many customers and continues to languish, the report states. In addition, some organizations are also reluctant to put mission-critical operations, such as supply chain management workloads, into the cloud.

What’s holding SAP back, Wang said, is a “lack of ease of use” and cutting-edge functionality in SAP’s on-demand products.

Those applications don’t offer the breadth of capabilities that SAP does, Herbert countered. Companies are reluctant to deploy software from Plex and Kinaxis because they don’t have the established reputation that SAP does, and certain functions like SCM don’t lend themselves to on-demand applications.

“Things that need a lot of customization; they aren’t necessarily the best fit for Software as a Service,” Herbert said.

Given that SAP’s software suite as a whole is not offered in the cloud -- “nor is it any hurry” to change that, according to the Forrester report -- its cloud services and applications look somewhat disjointed. In addition to its Business ByDesign suite, SAP’s offerings include ERP “add-ons” like Carbon Impact, e-Sourcing, and CRM on-demand -- hardly a full range of applications across the enterprise spectrum.

While SAP is making progress in terms of its on-demand offerings, it still has a long way to go, according to SAP Mentor and SAP analyst Jon Reed, who runs the popular SAP-focused website JonERP.com. He called the company’s range of options “immature” on the whole.

“They don’t have enough options yet,” Reed said, adding that SAP needs to have more robust, on-demand enterprise applications. SAP no doubt agrees, he said. “I think they’d be the first to admit that.”

Other challenges will slow SAP customers implementing more of the companies’ cloud-based services, according to the report. For one, the issue of security continues to be a major barrier, despite new companies like CloudSwitch that focus on making cloud environments more secure.

Performance is another issue that threatens to keep SAP cloud computing shops from moving forward. “Production SAP in the cloud means mission-critical, time-sensitive workloads delivered over the Internet. Bandwidth and latency issues still pose issues,” according to Forrester.

In order for companies to stay on top of both SAP and non-SAP cloud models, regardless of what they decide to adopt, Forrester says that companies should:

Research and selectively incorporate cloud-based services. Sourcing executives should keep an eye on what SAP and its competitors do going forward, as the struggle for market share will remain intense. “SAP sees enormous pressure to release cloud-based offerings -- but has a long path ahead to get there,” Forrester says.

Create contract templates, security checklists and evaluation criteria. Executives in charge of sourcing should keep in mind that on-demand applications need to be looked at differently than on-premise applications.

Look at performance over the long term. While some companies see SaaS solutions for short-term advantages, organizations should instead evaluate SaaS vendor performance once a year in terms of costs, and benefits with an eye on results over several years.

Prepare for different skill sets. Moving to, and implementing, cloud services will require different skills.

Those recommendations make sense, Reed said, but added that companies should “choose” on-demand applications only when it fits with their organization’s goals. “Make sure it’s in the context of an overall strategy,” on everything from data integration to compliance. “This means looking not only at SAP, but at other companies as well.”

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